Brace yourselves. The outlook for the global economy is not looking at all pretty. Jerome Powell has said as much.
The chairman of the Federal Reserve warned that the rate-setting committee is prepared to raise interest rates by a half-point in May. With US inflation at 8.5%, which is significantly higher than the Fed’s target rate of 2%, it would be irresponsible for the committee to react in any way other than decisively.
But even a 50 basis-point hike is unlikely to be enough. More aggressive interest-rate hikes could be needed to bring down inflation. Just how high the cost of borrowing might rise is anyone’s guessing. The market thinks that in the near term, it could climb as high as 2.7%, based on the 2-year Treasury note. It could go even higher.
J Powell said the aim of the Fed is to get demand and supply back in sync without triggering a slowdown that amounts to a recession....